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Will $15 Million In Life Insurance Help Repay Bilked Creditors?

Dave Harmon, Austin American-Statesman

By Dave Harmon, Austin American-Statesman

McClatchy-Tribune Information Services

Jan. 26--
An Austin investment manager who borrowed millions of dollars from wealthy investors throughout Texas -- including a former Round Rock mayor, a major league pitcher and one of the state's most powerful lobbyists -- had more than $15 million worth of life insurance when he took his own life in a rural cemetery last year, court documents show.

And that has his creditors -- nearly 90 of them so far -- more optimistic that they'll get at least some of their money back, even though what happened to the money remains a mystery.

At less than $30 million thus far, the
Mark Powell case doesn't come close to more notorious investment scandals like
Bernie Madoff's$65 billion Ponzi scheme, which left thousands of victims and netted Madoff a 150-year prison term. But it has reverberated among Austin's business and political power brokers, who considered Powell one of their own.

Records filed in Travis County Probate Court show that Powell was facing a wave of loan deadlines when he died in May of a self-inflicted gunshot wound. Nearly $7 million in loans from nearly 40 creditors came due in the three months before his death, and another deadline to pay back more than $4 million to two banks loomed in June.

The amount investors claim they gave Powell -- who ran the Austin office of Atlantic Trust Private Wealth Management -- has reached more than $28 million, most of it between 2011 and early 2013. Atlantic Trust, which declined to comment for this story, has said that Powell's activities were done outside of his work for the company.

Documents filed by Powell's estate claim he paid back more than $4.7 million over several years. The estate has approved about $13.6 million worth of claims so far -- which means that the estate has validated the claims but doesn't guarantee they will be paid.

In their court filings, the investors claim that Powell, a 53-year-old father of three, lured them with the promise of healthy returns on investments that never happened. Many of them were friends, neighbors, golf buddies and business associates who had known Powell for years.

Investors haven't received any payments yet, but between Powell's life insurance money and other assets -- including the family's $3 million Tarrytown home, which is now up for sale -- some investors say they are more hopeful.

Life insurance policies typically include suicide clauses -- insurance companies don't have to pay a death benefit if the insured person commits suicide within two years. Powell had seven different policies, according to court records, and he used at least one of them as collateral for one of his loans -- a $5 million policy issued by New York Life Insurance in 2003, a decade before his death. Court records don't reveal the dates of the other policies.

Ray Washburne, a Dallas investor and restaurant chain owner who gave Powell $650,000 in 2011, said he and other investors are hearing that Atlantic Trust has reimbursed its clients who made personal loans to Powell. Another investor who asked not to be named said he had been told the same thing.

"I understand that Atlantic Trust has made all their clients whole," Washburne said. "If that's the case, everyone pretty much gets made whole on this thing."

Washburne, who was tapped as the Republican National Committee's finance chair last year, said a payout by Atlantic Trust means that Powell's estate will have more money to pay the remaining investors who weren't Atlantic Trust clients. It's not clear from court records how many Atlantic Trust clients are among the investors making claims against Powell's estate.

There's another potential obstacle looming for the investors: the Internal Revenue Service. Washburne said investors are waiting to see whether the IRS tries to claim a substantial piece of the estate's assets by declaring that the loans were unreported income.

It could be months before lawyers and tax experts sort out the tangled financial web that Powell left behind. Meanwhile, claims from prominent businesspeople and wealthy Texans continue to stack up in an already thick court file:

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Mike Toomey, a powerhouse lobbyist who was Gov.
Rick Perry's former chief of staff, loaned Powell a total of $150,000 in 2010 and 2011.

In many cases, Powell offered people a chance to join him in what he pitched as a short-term, high-payoff investment to buy shares of United Surgical Partners International, a Texas-based surgical center chain whose board of directors included his father,
Boone Powell Jr. (who left the board in 2012).

Powell told investors the company was likely to be sold in the near future and that he would contribute the larger share of the investment money, while promising that investors' money would be secured by millions of dollars' worth of Invesco stock (Invesco was Atlantic Trust's parent company at the time) that he claimed to hold -- stock that apparently didn't exist.

In a letter to Inman dated Dec. 26, 2012, on Atlantic Trust stationary, Powell said he would invest $230,000 along with Inman's $75,000 and promised a minimum 9 percent return after five months -- and as much as $77,000 in profit if United Surgical Partners was sold.

"I have a high degree of confidence in the ultimate outcome and I am excited that you might participate," Powell wrote.

Inman, a venture capitalist who was a neighbor of Powell's, said that Powell pitched the deal "as a personal favor to him. It happened to be a time when I had some money available, and I was looking for something to do with it."

Powell agreed to pay back Inman on May 15, 2013 -- one of 15 loans totaling $2.4 million that came due that day, court records show.

Powell's body was found the next day in Pontotoc Cemetery in Mason County, about 100 miles from Austin.

Inman said he wasn't alarmed at losing his investment and that he hopes Powell's wife and children are taken care of before the investors get paid.

"That's the nature of the business, you're fortunate if one in three (deals) are successful," he said. "I guess my only modest regret is that I think I'm a pretty good judge of people. ... It's always disappointing when you miss a character flaw."

James Spindler, a University of Texas law professor who researches corporate fraud, said Powell's case is unusual because he brought in money primarily through relatively small, short-term loans, while better-known cases like Madoff's involved an elaborate infrastructure designed to trick investors into believing they were investing in a legitimate, long-term financial venture.

"It's remarkable how little work Powell had to do to get this money," Spindler said. "(Investors) would have been able to find out that something fishy was going on if they had wanted to."